ID 635 

.U5 

1915a 
I Copy 1 



INANCES AND COSTS OF THE PRESENT 
EUROPEAN WAR 



PREPARED BY THE WAR COLLEGE DIVISION, GENERAL STAFF CORPS 

AS A SUPPLEMENT TO THE STATEMENT OF A PROPER MILITARY 

POLICY FOR THE UNITED STATES 



WCD 9287-1 



ARMY WAR COLLEGE : WASHINGTON 

NOVEMBER, 1915 

VA, ^. ^,_^A -Vt^f^. ^^ ^J^. ^^- 




WASHINGTON 

GOVERNMENT PRINTING OFnOB 
1916 






War Department, 
Document No. 512. 
fee of the Chief of Staff. 



D. of 0. 
MAY B 1916 



^ 



SYNOPSIS 



Introductio> 



1. Policy employed in financing the war 5 

(a) Great Britain 5 

(b) France 5 

(c) Russia 6 

(cT) Italy 6 

(e) Belgium 6 

(/) Serbia 6 

(gr) Japan 6 

(h) Germany 6 

(i) Austria-Hungary 8 

(h) Turkey 8 

2. Cost of the war (Tables 1 and 2). . . .- 9-10 

(a) Great Britain 9 

(b) France 9 

(c) Russia . 9 

(d) Italy 9 

(e) Belgium 9 

(/) Serbia 9 

(g) Japan 9 

(h) Germany 10 

(i) Austria-Hungary 10 

(k) Turkey _ 10 

3. Number and amount of domestic loans (Table 3) 10-11 

(a) Great Britain 10 

(b) France 10 

(c) Russia 10 

(d) Italy 10 

(e) Belgium 10 

(/) Serbia 10 

(g) Japan 10 

(h) Germany 11 

(i) Austria-Hungaiy 11 

(k) Turkey 11 

4. Number and amount of foreign loans (Table 4) 11 

(a) Great Britain 11 

(b) France 11 

(c) Russia r 11 

(d) Italy : 11 

(e) Belgiima 11 

(/) Serbia 11 

(g) Japan 11 

(h) Germany 11 

(?■) Austria-Hungarj- 11 

(k) Turkey 11 

5. Total and per capita national wealth ; national debts 11 

Table 5 11 

30669°— No. 512 16 (3) 



FINANCES AND COSTS OF THE PRESENT EUROPEAN 
WAR. 



INTRODUCTION. 

A careful search of the files of the War College has been made 
for data covering the various points of the study. The results are 
embodied in the following pages. As was to have been expected, 
accurate data are almost Avholly lacking, and such as have been 
secured are of doubtful accuracy. The various warring nations are 
naturally not publishing information on this subject at this time, 
and the majority of the figures quoted in the following pages are 
little better than estimates. 

1. POLICY EMPLOYED IN FINANCING THE WAR. 

(a) Great Britain. — Prior to the outbreak of hostilities Great 
Britain had made no plans for putting the country upon a sound 
financial basis for war. The Imperial Government was as unpre- 
pared to meet the financial emergency caused by the war as it was 
to oppose the trained armies of central Europe with an adequate 
number of properly trained and equipped troops. Since the begin- 
ning of hostilities England has endeavored to meet the situation by 
laying heavy taxes on imports, " war profits," incomes, spirits, tea, 
etc., and in some cases the taxes on incomes have amounted to 83 per 
cent. The increased income derived from these sources has, of course, 
proven utterly inadequate to provide the huge sums necessary for the 
maintenance of the Government and the prosecution of the war. 
Great Britain has therefore been obliged to borrow extensively, and 
according to the best available information the amount she has ob- 
tained in this way at home since the beginning of the war is approxi- 
mately $5,489,000,000. Her foreign war loans aggregate approxi- 
mately $250,000,000. 

England has joined with France and Russia in providing a fund 
of $200,000,000 for meeting in part the war expenses of Belgium, 
Japan, and Serbia, and in addition it is believed has loaned Belgium 
$50,000,000 and Serbia $4,000,000 without interest until the end of 
the war. 

(5) France. — The outbreak of hostilities in August, 1914, found 
France well prepared financially to enter the war. For some years 

512 

(5) 



prior thereto France, like Germany and Eussia, had been building 
up a war reserve which, when war came, enabled her to put her well- 
trained and equipped armies into the field with the assurance that 
for a time at least there Avas no fear of a lack of funds for the prose- 
cution of the war. However, it soon became apparent that France, 
like all other nations involved in the war, must resort to borrowing 
to meet the enormous expenses of the situation. Since the war began 
France has borrowed at home approximately $1,680,000,000. A por- 
tion of this sum was obtained directly from the French people, who 
subscribed liberally to what was known as National-Defense Bonds, 
which ran for from 6 to 12 months and bore interest at 5 per cent. 
A later domestic loan which made up the total sum borrowed at 
home was floated through the Bank of France in the form of bonds 
for a term of years and bearing interest at 5 per cent. Later, in 
order to secure gold for purchases abroad, the Government called 
upon the people to exchange bullion for paper currency and even to 
turn into the treasury gold ornaments, jewelry, etc. The response 
to these requests was most patriotic. 

France has also joined with England in negotiating in the United 
States a loan of $500,000,000 at 5 per cent, and has contributed to a 
fund of $200,000,000 to meet in part the war expenses of Belgium, 
Japan, and Serbia. Her other foreign- loans aggregate $148,000,000, 
and are shown in more detail under (h) Table 4. 

(c) Russia. — Eussia had accumulated a large war reserve at the 
outbreak of hostilities. Part of this reserve which was on deposit in 
Berlin was withdrawn during the week preceding the war. The in- 
creased expenses due to the war are being met by increasing the 
rates of taxes already in force and by borrowing. So far as known, 
Eussia since the beginning of the war has made three domestic 
loans aggregating about $1,339,000,000. She has also joined with 
England and France in providing a fund of $200,000,000 to meet 
in part the war expenses of Belgium, Japan, and Serbia. 

(d) Italy. — No data are available respecting the financial policy 
of Italy or the measures so far adopted to meet war conditions. 
She has borrowed about $425,000,000. 

(e) Belgium. — Nothing is known of the policy of Belgium with 
respect to financing the war except that she has been aided by Great 
Britain, France,, and Eussia, as already stated. She has, however, 
been aided by Great Britain by a loan of $50,000,000 without interest. 

(/) Serbia. — Same as for Belgium. Great Britain has loaned 
Serbia $4,000,000 without interest. 

(g) Japan. — No data available. 

(h) Gerrrumy. — The following abstract of a description of the 
German method of financing the present war, by Eoland G. Usher, 

512 



in the December, 1914, issue of the AtLantie Monthly, is given as 
the best and clearest exposition of the subject yet available : 

Great sums of ready money have invariably been needed in Anglo-Saxon 
countries in order to begin a war, because those countries have invariably 
been caught unprepared. The Government has lacked not only the necessary 
materials, but the knowledge of their whereabouts, and has had to find them 
by ordinary business methods, which meant buying them in open market 
with money. England and the United States have always obtained in the 
same way the supplies and munitions needed to prosecute war and have always 
found an abundant supply of stable currency the indispensable nexus between 
the Government and its citizens by whom the commodities were produced. 
German statesmen and financiers have, however, arrived at an 
entirely different solution of the question. The German system of 
" financing " war depends upon the following : 

The army requires materml for its use and maintenance as does the 
nation at large, and stei>s were taken in time of peace to insure the 
supply of this material upon the outbreak and continuance of war. 
Certain supplies Germany did not and could not produce and 
those supplies were purchased and stored in quantity before the 
outbreak of war. The vast supplies necessary at the outbreak of 
war and before their manufacture could be increased were also 
purchased and stored. 

Certain other supplies Germany did not produce in normal times 
or did not produce them in the quantity sufficient for prosecuting 
war. These supplies could be produced, however, if adequate prepa- 
ration were made therefor in advance. 

Supplies of both the above classes would be necessary not only 
for the use of the army, but for the nation at large as well. 

In order to gather the class of supplies which she could not pro- 
duce at any time, capital was necessary with which to purchase 
them. Capital was also necessary for the purpose of subsidizing 
manufactures for the supply of materials which would be needed 
in increased quantities in time of war and which required special 
machinery and skilled labor for their production. To secure this 
capital Germany imposed before the outbreak of war a " war levy,'' 
which was a direct tax, amounting to $250,000,000, which, they ex- 
plained, was necessary to render the army efficient. With the capital 
thus obtained she " purchased in Germany and abroad every con- 
ceivable sort of supplies necessary to put the nation in position nec- 
essary to make war." 

As Germany employs the system of universal military service, she 
can tell just what men will be called away from their usual pursuits 
upon the outbreak of war. She knew in advance, therefore, just 
what men would have to be replaced by individuals not to be called 
to the colors in order to provide for the supply of commodities neces- 



8 

sary during war. She therefore subsidized manufactures in order 
to enable them to place in the factories the machinery which would 
be required during war and to train enough additional labor for 
operating the machinery — the additional laborers to consist of indi- 
viduals who were not to be called to the colors. 

In this manner Germany prepared in peace for the supplies she 
would need in war. 

Money in time of war, as at any otlier time, tlie Germans concluded, meant 
currency, and currency meant some medium of excliange whicli would be 
accepted by the people at face value. So long as the public confidence in the 
Government was unshaken and ultimate success was believed certain, a paper 
currency would serve the purpose much better than specie. The banking sys- 
tem, to be sure, collected gold as assiduously as it could during the months 
preceding the war and is supposed to have vastly increased the German gold 
reserve, which was to give stability to the paper currency and furnish a firm 
basis for such international exchange as they might eventually find necessary. 
The central banking system, however, * * * could absolutely control all 
exchange, could accept as collateral for loans whatever the individual had to 
ofEer and issue him paper credits. There would be plenty of real value because 
there would be plenty of real work ; the Government would see to that. 

The banks would make loans to the manufacturer and establish a checking 
account on which they would pay him paper, which in time he would pay his 
employees, who would pay it out for commodities. The dealers would pay it 
back into the banks, when the whole transaction would, as usual, be canceled. 

In this way Germany is attempting to avoid the necessity for 
borrowing the vast sums from neutral countries which the other 
warring nations are apparently going to have to do. 

The bond issues which she has made are not concerned Avith the 
war itself so much as with the necessary readjustments after the 
war is over. 

As observers we are not yet in a position to pass upon the ultimate validity 
of these measures. We can only point out that they seem to conform accu- 
rately to the experience of history and to be nothing more than the literal 
application of the simple postulates of political economy. So far as we can 
tell, if private letters are any evidence of what conditions in Germany at pres- 
ent are, every indication points toward the overwhelming success of German 
finance. 

(^) Austria-Hungary. — No data are available concerning the plans 
of the Government of Austria-Hungary for financing the war. It 
is known that she has borrowed money and that her first loan w^as 
made quietly through the banks, but the amount so obtained and the 
rate of interest paid are not definitely known. Her total domestic 
loans amount to $1,181,000,000. No further data concerning the 
financial transactions of Austria-Hungary are available. 

{k) Turkey. — It is reported that Turkey has received material 
financial aid from Germany in the form of a loan of $250,000,000. 
No other data concerning the financial policy and transactions of 
Turkey are available. 



2. COST OF THE WAR. 

In so far as this can be ascertained, it is shown by Tables 1 and 2 
appended, Table 1 giving what is known of the total cost to date 
and Table 2 the daily cost at the periods stated. These figures are 
only estimates, of course, and, as it is generally conceded that the 
war is becoming increasingly costly, are probably far below the 
actual amounts at this time. 

3. NUMBER AND AMOUNT OF DOMESTIC LOANS. 

The number and amount of domestic loans, in so far as they can 
be ascertained, are shown in Table 3. It must be understood that 
the information on this subject comes from various newspapers and 
that its accuracy can not be vouched for. 

4. NUMBER AND AMOUNT OF FOREIGN LOANS. 

This information is contained in Table 4. With the exception of 
the Anglo-French loan made in the United States, the same remarks 
as to the validity of the information applies here as in the case of 
domestic loans. 

5. A TABLE SHOWING TOTAL AND PER CAPITA NATIONAL WEALTH 
OF VARIOUS NATIONS AT THE BEGINNING OF THE WAR; ALSO 
NATIONAL DEBTS IN 1914 AND ESTIMATED AMOUNTS IN 1916. 

Table 1. — Cost of the war. 

(a) Great Britain.— ^S, 526, 000, 000 for one year only. (Collier's 
Weekly, Nov. 6-15, p. 11.) 

Note.— To this amount should be added some portion of $200,000,000 furnished 
to Belgium, Serbia, and Japan jointly by Great Britain, Russia, and France. 

(Jj) France.— $1,750,000,000 for period April 1, 1915, to August 
1, 1915. (Eeview of Eeviews, April, 1915, p. 452.) 

Note. — To this amount should be added some portion of $200,000,000 furnished 
to Belgium, Serbia, and Japan by Great Britain, Russia, and Prance. 

(c) Russia.— $2,000,000,000 for period April 1, 1915, to August 1, 
1915. (Review of Reviews, April, 1915, p. 452.) 

Note. — To this amount should be added some portion of $200,000,000 furnished 
to Belgium, Serbia, and Japan by Great Britain, Russia, and France. 

(d) Italy.— $'^00,000,000 for period April 1, 1915, to August 1, 
1915. (Review of Reviews, April, 1915, p. 452.) 

(e) BelgiuTTh. — No data. 
(/) Serbia. — No data. 
{g) Japan.^-'No data. 



10 

(A.) Germany. — $2,500,000,000 (includes Turkey's expenditures) 
for period April 1, 1915, to August 1, 1915. (Eeview of Reviews, 
April, 1915, p. 452.) 

{i) Aust7n^-Htmgary.— $1,500,000,000 for period April 1, 1915, to 
August 1, 1915. (Review of Reviews, April, 1915, p. 452.) 

(k) Turkey. — See Germany. 

Table 2. — Daily cost of the toar. 

(a) Great Britain.— %U,100, 000 (Collier's Weekly, Nov. 6, 1915, 
p. 11). Present time. 

(h) Frairwe.— $7,000,000 (Literary Digest, Dec. 5, 1914, p. 1151). 
During August, September, and October, 1914. 

(<?) Russia. — No data. 

{d) Italy. — No data. 

(e) Belgium. — No data. 

(/) SerMa.~No data. 

(g) Japan. — No data. 

(A) GeT-many.— $5,000,000 to $7,000,000 (Literary Digest, Dec. 5, 
1914, p. 1152). Prior to December, 1914. 

(i) Austria-Hungary. — No data. 

{k) Turkey. — No data. 

Table 3. — Domestic loans. 

[Except when otherwise noted, the figures for this table were taken from the Literary 
Digest, Nov. 20, 1915, p. 1198, quoting New Yorli Times Annalist.] 

{a) Great Britain. — 

Bonds 3i per cent (10 to 13 years sold at 95) .$1, 750, 000, 000 

Bonds 4 J per cent 2, 925, 000, 000 

Five-year exchequer Cis 239, 000,000 

Treasury bills (2i per cent to 3i per cent), six months 

(estimated as now outstanding) 575, 000, 000 

Note. — When the 4J per cent loan was made the rate of interest on all preceding loans 
was voluntarily raised to 4J per cent, with the promise that if further loans at higher 
rates of interest became necessary all prior loans should bear such higher rates. 

(h) France. — 

Bonds, national defense, .". per cent (6 to 12 months) $1, 230, 000, 000 

Bonds, Treasury, 5 per cent (a term of years) 450,000,000 

(c) Russia. — 

Bonds 5 per cent .$515, 000, 000 

Bonds 5i percent 515,000,000 

Bonds 4 per cent 309, 000, 000 

Treasury bills at home and in England and France 1, 252. 000, 000 

(d) Italy.— 

Bonds ')h per cent $200, 000, 000 

Bonds 4J per cent 200, 000, 000 

(e) Belgium. — No data available. 
(/) Serbia. — No data available. 
(g) Japan. — No data available. 

512 



11 

(A) Germany. — 

First war loan 5's $1, 115,000, 000 

Second war loan 5's 2,265,000,000 

Third war loan 5's 3,025,000,000 

{%) Austria- Hungary. — 

Austrian bonds 5| percent $433,000,000 

Hungarian bonds 6 per cent 237,000,000 

War loans, credits, etc ^ 1,161,000,000 

{k) Turkey. — No data available. 

Table 4. — Foreign loans. 

-[Except when otherwise noted, the figures for this table were taken from the Literary 
Digest, Nov. 20, 1915, p. 1198, quoting New York Times Annalist.] 

{a) Great Britain. — 

One-half of Anglo-French credit in New York 5 per cent 

bonds .$250, 000, 000 

(b) France. — 

One-year 5 per cent notes in London .$50, 000, 000 

One-year 5 per cent notes in New Yoy\{. 25, 000, 000 

Credits and collateral loan in New York 73, 000, 000 

One-half Anglo-French loan in New York 250,000,000 

{c) Russia. — See "Treasury bills/' etc., under (c) Russia, table 3. 

{d) Italy. — Loan now being placed in New York, $25,000,000. 

{e) Belgium. — $50,000,000 loaned by British Government during 
the war without interest. 

(/) Serbia. — $4,000,000 loaned by British Government during the 
war without interest. 

((/) Japan. — No data available. 

(A.) Germany. — 

Notes in United States .f 10, 000, 000 

{i) Austria-Hungary. — No data available. 
(A;) Turkey. — 

Loan in Germany $250, 000, 000 

Tablk 5. 



National 
at be- 
ginning of war. 



Per capita 
wealth at be- 
ginning of war. 



National 
wealth at be- 
jioningofwar. 



Per capita 
wealth at be- 
ginning of war. 



(a) Great Britain 
(6) France 

(c) Russia 

(d) Italy 

(f) Belgium 

(/) Serbia 



$.85,000,000,000 
50,000,000,000 
40, 000, 000, 000 
20,000,000,000 
9,000,000,000 
500,000,000 



$1,777 

1,625 

250 



((/) Japan' 

(7i) Germany 

(i) Austria- Hun- 
gary 

(fc) Turkey 



$80,000,000,000 



25,000,000,000 
3,000,000,000 



(?) 



J923 
500 



NATIONAL DEBT. 



(a) Great Britain. 
('() France 

(e) Russia 

(d) Italy 

(f) Belgium 

(/) Serbia 



$3,485,000,000 
6, 345, 000, 000 
4,540,000,000 
2, 850, 000, 000 
825,000, 000 
125,000,000 



$11,000,000,000 

9,500,000,000 

6, 500, 000, 000 

3,000,000,000 

825,000,000 

125, 000, 000 



(9) Japan i ' 

(ft) Germany $3,735,000,000 

(0 Austria- Hun- , 

gary ' 1,050,000,000 

(fc) Turkey ! 675,000,000 



2,000,000,000 
675,000,000 



No data available. 



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